HSA Excess Contributions

[TE290]

My 2024 HSA Excess Contribution of $1713  shown on Form 1099-SA was entered into TurboTax. 

Under form 8889 in turbo tax it shows no tax is due. However, sense that amount was taken out of my paycheck tax free I believe I have to pay taxes on the amount that was taken out and distributed to me. This distribution was taken out this year before the due date so there is no penalty but why doesn't it show the taxes that are owed on it? Some websites state excess contributions should be reported under other income but why doesn't turbo tax have it entered there as taxable income?

[BillM223]

You don't see the excess contributions reported on your 2024 return, because the excess contributions were already reported on your 2023 return.

If your HSA contributions were made through your employer by means of payroll deduction, the in 2023, at the moment that TurboTax detected the excess contributions, then TurboTax added back the excess to Other Income. That is why it is not added back in 2024.

When you have a distribution code of "2" on a 1099-SA, the only thing that is added to your income is the earnings in box 2 on the 1099-SA.

So go look at your 2023 return and see if the excess was handled there, and you'll realize that all is OK.

[TE290]

We had to take the money out of the HSA  account in 2024 because my husband retired end of July 2024 and there is the requirement to stop contributing 6 months before retirement because of beginning Medicare.

We didn't know about that requirement till April 2024 after the company made it's contribution along with pretax payroll deductions which ended up being an excess for the year for only working for 7 months of the year.

I did look at 2023 taxes and there's no excess contribution there because the problem was in 2024. Hope this makes sense. Do we need to pay the taxes on the distribution he took this year along with the earnings? Thank you

[BillM223]

OK, because you got the 1099-SA early this year, I assumed it was for 2023 (1099-SAs show normally a year later).

So when you went through the HSA interview in TurboTax for tax year 2024, and showed that your spouse's HDHP coverage ended in July, BUT, he had Medicare starting in January 1st? February 1st?, did TurboTax not tell you that you two had excess contributions? Did it tell you $1,713?

If so, and since this was done for the 2024 tax return, the excess contributions that came through your (his) employer should have been added back to Other Income (line 8f on Schedule 1 (1040)). Was it?

If not, there is something very off in what you are describing.

In any case, that is why the 1099-SA is not changing your income much - only the earnings are added to income with a distribution code of "2", because the excess contribution is added to income in a different way.

[TE290]

In the 2024 HSA questionnaire we checked the boxes of the months we had HD insurance and that the other insurance (medicare) began Aug 1st.  The system filled out the 8889 form with the excess contributions but the results came out owing zero. I don't remember it telling us that we had excess contributions in a message specifically but it's listed in the 8889 form. We had another distribution of $79 for a medical expense. So it went like this in form 8889- Line 14 Smart  Worksheet:

14 a:$1792

14b: $1713

14c: $79

15:$79

16: 0

Wondering why it comes out to zero?

The $1713 is not listed under other income line 8 schedule 1. We tried to enter it there manually but it won't let us.

[BillM223]

Thank you for the numbers.

Is it possible that you made personal contributions to your HSA in addition to your employer contributions?

Line 16 should be 0 (this number represent distributions that were not withdrawn in time). The excess amount that was contributed through your W-2 will be automatically added back to line 8f (Schedule 1, 1040), without going through line 16. But making direct contributions will spoil this arithmetic.

So it does not worry me that line 16 is zero; what worries me is that you say that you made employer contributions (code W in box 12 of your W-2), with a reported excess of $1,713; you withdrew $1,713 before the due date of the return, but the $1,713 is not added back to income on line 8f on Schedule 1 (1040). I don't understand that.

As you can imagine, I had created a test, and I can't get to do what you say you see. I have to assume that our inputs are different in some way.

Would you send us a "sanitized" version of your return? "Sanitized" means that all personably identifiable data is removed so that we have no idea who you are (really, we don't).

You do not have to sanitize the return, because the process of creating a token (an entry into our data base that points to your sanitized return) invokes a process which removes all personally identifiable data.

To give us a token, please do the following:

Online

• Log into your TurboTax Online tax return
• On the left, click on Tax Tools
• Under Tax Tools, click on Tools
• In Tools Center, click on Share my File with Agent
• TurboTax will give you a “token”, a 7-digit number
• Post the token number in this thread
• Be sure to add to that post “@” “billm223” (without the space in between) so that I will be notified

Desktop (Windows)

• Open your return in the desktop product
• Look along the top and click on Online
• Click on Send Tax File to Agent
• TurboTax will give you a “token”, a 7-digit number
• Post the token number in this thread
• Be sure to add to that post “@” “billm223” (without the space in between) so that I will be notified

Desktop (Mac)

• Open your return in the desktop product
• Look along the top and click on Help
• Click on Send Tax File to Agent
• TurboTax will give you a “token”, a 7-digit number
• Post the token number in this thread
• Be sure to add to that post “@” “billm223” (without the space in between) so that I will be notified

[TE290]

Thank you for helping with this. We can send over a sanitized copy but I'm thinking this issue might be coming from the answered questions in the HSA questionnaire.  You ask if we made any personal contributions? We didn't make any with after tax money. The employer put in $1250  beginning of the year  and the rest came from employee payroll deductions. Here's some of the questions in the HSA section I wonder if we answered correctly:

Was your excess HSA contribution made by your employer and deducted from your wages in Box 1 of W-2? --YES

Enter 2024 Payroll and employer contributions (box 12 of W2) $3262  Any contributions you personally made? (not through your employer)  -NO, zero (we didn't make any from after tax, all came from pre-tax payroll deductions)

HSA Summary Table: Total Distributions :$1792, Taxable Earnings on Excess Contributions: 0 (zero),

Tax free Employer contributions: $3262. Everything else is zero

Do you think those questions were answered correctly?

[BillM223]

All the questions and answers you listed in the previous post seem appropriate.

What I don't understand is how you have excess contributions for 2024 of $1,713, yet don't appear to have excess contributions for 2024.

I can't remember, do you have the CD/download version of TurboTax? What is the amount on line 12C on the 8889? Is it 1,713?

And if you have the CD/download software, I want to confirm that in the HSA Summary for the line that reads "Taxable employer contributions" you actually have zero?

[TE290]

I have the downloaded deluxe version.

12-  A,B&C are all blank (no numbers listed)

In the HSA Summary there is no line that reads "Taxable Employer Contributions". Here are all the lines listed:

Deductions $0

Total distributions $1792

Taxable distributions $0

Taxable earnings on excess contributions   $0

Tax-free employer contributions  $3262

Excess employer contributions withdrawn  $0

[BillM223]

OK, something is very off.

You said at the beginning that you had $1,713 in excess contributions. Who told you that? I am guessing that TurboTax did not.

You also said "My 2024 HSA Excess Contribution of $1713  shown on Form 1099-SA was entered into TurboTax. " I had initially assumed that this was for a 2023 excess contribution, but you said that you did not have one in 2023. But the numbers you are showing for 2024 also suggest that you don't have excess contributions for 2024 either.

Line 12A is where your excess contributions would have appeared IF they were contributed through your employer and not directly by you to the HSA custodian.

You started this thread expressing concern that you needed to add back certain "employer" contributions (the code W amount, that is) if you had excess contributions. While that is true and commendable, you don't have to do that because TurboTax does it automatically. And, honestly, it only does it if TurboTax detects an excess, but it doesn't sound like it has.

So let me try to wrap this up.

1. TurboTax automatically adds back to line 8f (Schedule 1, 1040) any excess contributions that came from the code W amount in box 12 on your W-2.

2. If you have gone all the way through the HSA interview and seen the HSA Summary, and TurboTax didn't tell you that you had an excess contribution nor added anything to line 8f (Schedule 1, 1040), then if you entered everything correctly, you didn't have an excess to report.

3. You do NOT have to do any manual finagling (technical term) yourself.

[TE290]

Thanks for hanging in there with me. Your right, Turbo tax didn't say we have excess contributions.  It was the 1099SA form we received from the HSA company.  We got 2 1099SA's. One was a medical expense $78 and the other was a distribution $1713 for an excess contribution.  The one form had code 2 (excess contributions)  in box 2 of the form.  Don't we have to pay taxes if money was taken out of the HSA and it wasn't for a medical expense?

All of this is because Medicare requires anyone who is going on Medicare has to stop contributions the month before their birthday. Unfortunately we ended up over contributing to meet Medicare rules.  So we took it out in  April 2024 and was reported on the 1099SA form.

[KeshaH]

Only the penalty aka "additional tax" would show on the Form 8889. The amount that's called "tax" on the 8889 is actually the penalty. The tax itself is calculated on your Form 1040 and included with the tax on your other income.